Video Game Market Segmentation

One of Sun Tzu’s most quotable lines from The Art of War is “Know thy enemy and know thyself and in a hundred battles you will never be in peril.” And while you should never think of customers as the “enemy,” it’s still crucial to understand them in order to wage a successful marketing campaign. Understanding your customer means figuring out who they are, what their needs are and how you can serve those needs. And the first step in that journey is video game market segmentation.

So, it’s crucial that you start with the end user in mind so you can refine your strategy. Knowing your target also means you can try to find some of your prospective users in order to start testing your hypotheses. And the first step towards identifying a target audience is video game market segmentation.

What is a segment?

There are two extremes of product design: one-for-all and one-for-each*. A one-for-all approach means you have a single product that you sell to everyone. One-for-each means that each customer gets his or her own unique, customized version. Neither of these is ideal for game development. A game designed for (literally) everyone would likely please no one. And making a custom version of the game for each customer would be logistically impossible. So, we need to strike a balance, and take a one-for-some approach. In other words, make something that is designed for some chunk of the entire market. And that chunk is called a segment.

Video game market segmentation means breaking up an overall addressable market of gamers. The addressable market is everyone you could possibly reach with your game. For example, all gamers, all mobile gamers, all console gamers, etc. You break the addressable market into segments, or groups with consistent traits. These segments are usually defined by needs or interests. Some traits that could be used for segmentation:

Pro gamers vs non-pro

Players who join clans versus those who don’t

Console players versus PC players

Budget gamers versus players with lots of disposable income

College gamers versus high school players versus young professionals

Multiplayer focused versus single-player focused

RPG lovers versus FPS addicts versus sports junkies

Three Criteria for Properly Segmenting a Market

To segment properly, you need to satisfy three criteria:

The segments must be mutually exclusive (no overlap)

They must be collectively exhaustive (the segments you identify must, collectively, cover the entire addressable market)

Prospective customers within a segment need to be homogeneous (they’re all RPG lovers or they’re all budget minded)

Resources that Informed and Influenced this Post

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How Many Segments?

There is no rule as to how many segments to define. It’s yet another trade-off.

The advantage a fewer segments is that they’re larger, so they have better revenue potential. The bad part is that the larger they are, the less homogeneous they are. For instance, if you define a segment as “Competition Focused” it’s only homogeneous trait is competition. But what kind of competition? Kill/death ratios? Home-runs? Achievements? Contrast that with a segment that’s defined as “Competitive, Team-Based Shooter Fans”.

Larger segments will also have more overall competition and more diverse competition. If you are making a multiplayer FPS, and your target is the “Competition Focused” segment, you will have lots of competitors, which is tricky enough. But they’ll also be diverse: you’ll be competing with other FPS’s, but also sports games, MOBAs, fighting games, etc.

And diverse competition makes positioning difficult. It’s hard to effectively position your game against both FPS and MOBA games.

Alternatively, the more thoroughly you define your segment, the easier it is to tailor a feature set to that segment. It’s also far easier to position your game to be attractive to that segment, and design an awareness campaign for that segment. The downside is that, the more specific you are, the fewer people will match that profile, meaning your revenue potential is reduced.

Your goal in segmentation is to define a target segment that is small enough to make a focused product (and to be able to position that product competitively), but large enough to be profitable. And remember, as I covered in my post about Strategic Design, you can use what you know about the target segment to eliminate investments it doesn’t care about, which can make the segment more profitable.

Top-Down or Bottom-Up Segmentation?

In my post on marketing strategy, I mentioned the top-down (market driven) and bottom-up (design-driven) approaches to defining a marketing strategy. Segmentation is applicable to both. In a top-down strategy, you would use your findings from your research to designate segments. In a bottom-up strategy, your would base segments on your design (people for whom your game solves a need, and those for whom it doesn’t).

Super-Duper Important Caveat 64

DON’T EVER define segments by your game. Don’t define segments as “People who want a game with X,Y,Z features” and “People who don’t”. Segmentation isn’t about you, it’s about the customers. So don’t make it about you or your game. Define your segments by their needs, not by your design.